Sectional title vs. freehold – consider the differences before investing

Sectional title / community

Sectional title living can offer heightened security, affordability, and a communal way of life. However, sectional title ownership comes with a variety of responsibilities and legalities of which property buyers are not always aware.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa says there are considerable differences with regards to investing in sectional title and freehold (or full title).

When purchasing freehold or full title, the buyer gains full ownership rights of the property, including the building and the land it is built on. When you purchase a sectional title, a buyer only gains ownership of a unit or section within a complex or development along with an undivided share of the common property” he says.

When owners have full control over their decisions when purchasing a full title property, owners within sectional title developments are governed by a Body Corporate who are responsible for managing the scheme, setting and enforcing complex rules, and taking care of finances”.

Unlike freehold properties where the owners pay for the upkeep of the pavement, garden and exterior of their home, sectional title unit owners pay a monthly levy instead. This levy includes maintenance of the common property wages of those maintaining the common property and, any water and electricity required for the common property. The cost of maintaining pools, tennis courts, communal park areas and clubhouses in the development is shared which contrasts with freehold property, where the owner is responsible for all costs.

This is where some buyers might prefer the independence of owning a freehold title. Unlike full title ownership, where the owner is in complete control and is financially responsible for the property in its entirety, investors in a sectional title scheme will own part of a scheme, meaning that the owner is part of a small community and will need to comply with the management rules and conduct rules as laid out by the Body Corporate. The rules and regulations of any particular complex may change, and, unlike freehold property owners, sectional title investors or owners may not be happy with the changes, but won’t have the power to change them in an individual capacity,” Goslett cautions.

Owners of sectional title units do not have the freedom to make improvements to their properties. Those who wish to renovate, need to get approval from the Body Corporate before they can begin building.

Those investing in a sectional title scheme will also be liable for the debt of the Body Corporate. As such, it is important to deduce if the scheme is being managed correctly and that the financial statements of the Body Corporate are in order,” he advises.

From an affordability perspective, sectional titles often offer good value for money yet, the return on investment is often slightly lower than one might expect on a full title property. According to the RE/MAX National Housing Report Q2 2020, sectional titles continue to be the worst affected by the lockdown. Reflecting a significant decline, the national median price of sectional titles dropped by 8% to R953,084 from the R1,032,045 reported in Q2 2019. Freehold homes, on the other hand, reflected a national median price of R1,109,852 which is a 3% decrease on the median asking price for Q2 2019 (R1,148,167).

Deciding whether to purchase a full title stand or sectional title property is entirely dependent upon a buyer’s unique requirements and needs. Those who are uncertain which form of ownership would better suit their needs should get in touch with one of our local RE/MAX real estate professionals who will gladly provide some free advice around the topic,” Goslett concludes.